When an individual who is taxed under the capital gains tax regime sells or disposes of tokens, this is generally a "chargeable event" for tax purposes so it is necessary to work out if they have made a "taxable gain" or an "allowable loss".
An individual can dispose of cryptoassets in a variety of ways, for example:
- selling the tokens for money on an exchange like Coinbase or Binance;
- exchanging one type of token for another;
- using tokens to pay for goods or services;
- giving away tokens to someone else (although gifts to a spouse or legal partner don't count)
Moving tokens between wallets does not generally amount to a disposal, however, provided the individual retains the beneficial ownership of the tokens throughout the move.
HMRC says that using a mixer, tumbler or similar service does not result in a disposal provided the individual receives the same type of tokens they put into the transaction - but if they end up with a different kind of tokens this will be a disposal. (Tumblers are used to protect the anonymity of the individual in a crypto transaction).
Under normal capital gains tax principles, if tokens are given away to another person (other than a spouse or legal partner), the individually is generally treated for tax purposes as having sold them for their current market value; to work out the market value, the tokens are converted into a pound sterling value at the time of the gift. The pound sterling value of the most commonly traded, liquid tokens should be readily identifiable from available prices on the big crypto exchanges.
If income tax has previously been charged on the value of the tokens received by the individual now making the disposal, for capital gains tax purposes any chargeable consideration will be reduced by the amount already subject to income tax.
Scholes Chartered Accountants helps UK resident individuals to deal with their crypto tax affairs - call us today on 01856 872983 or e:mail us if you'd like assistance. Or, visit us at our Edinburgh or Kirkwall offices.